VDC Research: RFID, Barcode, Retail Automation & Self-Service Market Blog

AutoID Market Shakeup: TSC Acquires Printronix’s Thermal Printer Business

Leading barcode printer vendor TSC AutoID Technology (TSC) announced on November 9 that it has signed a definitive agreement to acquire the thermal printing business of Printronix, a company focused on serving the industrial supply chain with its rugged, high-performance thermal label printer product line. This acquisition is expected to close in January 2016. I find this development equal parts interesting and refreshing. It has been a while since the market saw an acquisition by a vendor other than one of the AIDC conglomerates (Datalogic, Honeywell, Zebra Technologies, and the former Motorola Solutions).

TSC had a strong 2014, as indicated in VDC’s recently published 2015 Stationary Thermal Barcode Printers report, and has grown at consistently high rates in recent years while also outperforming overall market growth. The company is an especially strong competitor to Honeywell, SATO, Toshiba TEC, and Zebra Technologies in the Asian market. While TSC has made some headway into EMEA in recent months, its performance in the Americas left much to be desired. This will change with its Printronix acquisition as this vendor earns 90% of its revenues from the Americas and Europe. Printronix exclusively targets application environments in the industrial supply chain with its line of thermal label printers. The company had a lackluster 2014 in terms of sales growth, but saw a leadership change early in 2015 and started laying the groundwork for a new approach to building channel relationships. It is making its way into the low-end industrial market with its entry-level T2N series, priced aggressively at less than $1,000 for the 203dpi model. The company also recently released its second portable printer, M4L2, which is designed for use in industrial and warehousing environments. All of its recent investments prove its commitment to differentiating its product line from both Honeywell and Zebra. Printronix is also the only vendor that offers industrial label printers with in-line verification capability, giving the vendor a distinct advantage over its peers in industries like retail with strict labeling compliance requirements.

Market consolidation and over-distribution has given way to pent-up frustration with what is viewed as weak qualification criteria for premier partnership status especially as channel organizations look to enter/exit deals on a profitable note same as hardware vendors. With Printronix, TSC will now be able to take advantage of the company’s defensible niche position in the industrial label printer market. I expect more systems integrators and solution providers – including Lowry Solutions, Peak-Ryzex, and Supply Chain Services – to now seek out a partnership with TSC with an aim to broaden their solution offerings and include newer brands as part of the portfolio, especially if they can get better price exceptions and deals while also meeting unique customer requirements in the industrial supply chain with all-in-one products.

NCR puts itself up for acquisition; VDC breaks down the “retail” reasons why

On April 22nd, The Wall Street Journal announced the news that ATM-maker NCR is eyeing strategic alternatives as they face lagging stock prices and shareholder pressure. A potential spinoff, sale of assets, or a full acquisition/buyout - all seem like very viable possibilities. On June 2nd 2015, news broke of NCR asking for first-round bids from prospective buyers and on June 16th, two large private equity firms, Blackstone Group LP and Carlyle Group LP, have paired up in a $10 Billion leveraged buyout (LBO) offer for NCR, including debt.

Started by John H. Patterson in 1884, the National Cash Register Company was the maker of the first mechanical cash registers. Moving forward to 2015, the company is now known simply as NCR, and sells transaction services, automated solutions, software and consulting services to clients across a wide array of industries including financial, retail, hospitality, travel and government. The company facilitates over 550 million transactions a day. NCR divides itself into four major segments: Financial Solutions, Retail Solutions, Hospitality Solutions, and Emerging industries.

• Financial Services provide ATM and payment systems along with software and services for cash management, digital banking, maintenance, and management.
• Retail Solutions provide retail-oriented solutions and systems including POS terminals and software, barcode scanners, self-checkout solutions and kiosks, printer media and software – all in support of an omnichannel experience. In addition, this division provides professional services including installation, integration, device management, and maintenance for some of the company’s largest clients.
• Hospitality provides systems and solutions for restaurant chains and venues including POS hardware and software along with professional services and printer media. 
• Emerging Industries which is targeted towards newer industry verticals including telecommunications and technology, and travel includes maintenance and professional services for third-party hardware for certain manufacturers. It also provides small business-specific systems and solutions including comprehensive POS terminals, software and professional services.

In order to remain competitive and adapt to changing market conditions and consumer trends moving online, NCR made large acquisitions, buying companies like Retalix and Radiant Systems to strengthen its Retail Solutions division and enter the Hospitality segment respectively. However, since then, NCR has failed to integrate and generate sufficient growth from the acquisitions and now carries debt of $4 billion. In this blog, I will shine the spotlight on NCR’s acquisitions of these companies, thereby highlighting the company’s present (unenviable) position from a Retail and Hospitality standpoint.

To expand its Retail Solutions business, NCR acquired Retalix, an Israeli vendor of retail, marketing, supply chain and logistics software solutions. The company was purchased for $650 million with the aim of cross-selling to a combined, larger client base, improving margins through its software model while also leveraging R&D best practices. However, NCR did not successfully leverage Retalix’s strengths to position itself as a leader in the next-generation retail solutions segment – from a mobility and e-commerce standpoint. The division has faced challenges with slowing demand from retail customers as they increasingly embrace mobile devices to support transaction processes and cloud-based solutions for their e-commerce initiatives. Retail Solutions has seen revenue declining quarter-on-quarter since Q1 2014 with the latest Q1 2015 results showing a 9% decrease in revenues, at $445 million. This, coupled with an operating margin of 7.7% in 2014, which lowered from 10.1% in 2013, continues to negatively impact overall profitability. The company’s inability to move with the times, especially as it relates to fulfilling its retail customers’ growing focus on e-commerce and online order fulfillment, along with its increasing liabilities are significant contributors to its declining revenues and profitability.

Acquired in 2011, Radiant Systems was a specialized provider of hospitality POS software and solutions which allowed NCR to become competitive in the Hospitality segment. NCR’s hospitality segment makes up only 10% of revenues and has seen declining quarter-on-quarter revenue growth since the first-quarter of 2014. During Q1 2014, revenue growth was 14% quarter-on-quarter, which has dropped to a 1% decline in Q1 2015. The division has also seen its operating margin drop from 16% in 2013 to 13.8% today. Like retail, the hospitality segment encountered slower sales with customers moving away from traditional POS terminals to mobile and handheld solutions, highlighting the massive gap in NCR’s core product line(s). This part of the business has also been affected from the move to mobile POS, as restaurant POS vendors such as Vend and Touch Bistro use subscription-based models for restaurant POS systems to lower capital expenditures. Furthermore, the increased availability of mobile devices has led to smaller restaurants using these solutions to offer greater flexibility and varied payment acceptance, especially as restaurants begin to accept electronic wallets like Apple Pay, which is proving to be a big miss for a company like NCR.

In a positive move for the company, NCR updated its NCR Silver platform, a cloud-based POS solution for the iPad and iPhone that is aimed at serving small businesses. To stay current with evolving market trends, NCR integrated payment alternatives including PayPal, Apple Pay, Bitcoin and LevelUp along with providing enhancements to facilitate safer and more secure transactions. The company has also priced the service more competitively with NCR Silver offered at $59/month, aimed at small businesses, and a NCR Silver Pro Restaurant Edition priced at $129/month. NCR’s Emerging Industries division is also looking to introduce chip and PIN capability later in 2015. With these latest updates, VDC believes NCR is embracing change while staying competitive with offerings in the marketplace today.

NCR’s retail and hospitality-focused acquisitions have not performed according to market (or even company) expectations. Ineffective strategy execution has also resulted in little-to-no organic growth while prompting the company to take on a large debt for financing these sizable acquisitions, in both the retail as well as financial services sector. NCR’s less-than-optimal performance in recent quarters has pushed its largest shareholders to look for strategic alternatives. Will it better for investors to buy parts of the company as opposed to the whole? That remains to be seen. But, for the company to re-invent itself and get back to its glory days with its retail and hospitality divisions, NCR will have to make a concerted research and development effort to introduce innovative products and solutions that align themselves well with end users’ evolving profitability goals and customer engagement initiatives. The company has a great foundation to build off of; it’s now time to change up the structure and better position its business for current and emerging growth opportunities.

VDC will explore this topic further in an upcoming VDC View. Stay tuned!

(With Richa Gupta, Senior Analyst)

Cognex sells its Surface Inspection division for $160 Million; VDC Speculates What’s Next for the Company

Cognex Corporation (CGNX), a leading vendor in the machine vision and industrial scanning markets, announced the acquisition of its Surface Inspection Systems Division (SISD) on June 8, 2015, as part of a $160 million, all-cash deal with AMETEK Inc., a multi-billion dollar manufacturer of electronic instruments and electromechanical devices. While the transaction continues to be subject to closing conditions and regulatory approvals, AMETEK expressed its enthusiasm to have the new SISD department as the latest addition to its Electronic Instrument Group (EIG) product portfolio, a leader in the design and manufacturing of advanced instruments for the process, aerospace, power and industrial markets, which amassed a total of $2.4 billion in sales in 2014. With the strategic sale of its surface inspection business, a division that generated $60 million in sales in 2014, Cognex plans to sharpen its focus on automating discrete manufacturing applications via its Modular Vision Systems Division (includes machine vision and ID products), which accounts for 84% of organizational revenues as of Q1 2015.

Cognex first introduced the SmartView® surface inspection platform in 2000 after the acquisition of Isys Controls, Inc in 1996, a small company that had developed high-performance machine vision systems to automatically detect and classify surface flaws and defects on high value-added materials. Under Cognex, this division now diversifies across verticals with image processing technology that detects, classifies, filters, and maps specific defects on area surface of metals, paper, plastics, nonwovens and glass manufacturing. In addition to the advanced line scan cameras that enable immediate defect detection in high-speed applications, the SmartView® platform also supports global customers with superior detection algorithms, a range of classification and data management software, and technical assistance spread throughout countries in the Americas, Europe, and Asia, including Japan and China. Asia-Pacific, including Japan, accounted for 40% of SISD revenues in 2014, Americas for 40%, and Europe for 20%. Cognex has installed over 1,000 of its surface inspection systems globally with its customer portfolio including names like AK Steel, USS, Bao Steel, China Steel, TATA, and ArcelorMittal.

Cognex has chosen to sell its surface inspection business despite the 29% sales growth from 2013 to 2014 and record sales levels that this division experienced in Q4 2014, particularly for applications like specialty metal inspection (for Aluminum going into car bodies). VDC believes this can be attributed to the company choosing to exclusively focus on discrete manufacturing and logistics opportunities, coupled with the surface vision division’s relatively lower contribution to overall profitability. SISD gross margin stood at 55% in 2014, which was significantly lower than that of the factory automation division (MVSD) with a 78% gross margin. The complex nature of inspection technology required Cognex to opt for in-house manufacturing at its Hayward, California facility, whereas a majority of MVSD products are outsourced to Asian OEMs (like in Indonesia). This difference in gross margins can also be explained by the high service to product sales ratio in SISD, and the lower yield in margins for service revenues in contrast to product revenues. In 2014, Cognex reported that 30% of SISD revenue was derived from service sales, which included the sale of maintenance & support, training, consulting, and installation. Only 4% of MVSD revenues were from service sales and the remaining 96% were from the higher margin yielding product sales – which include technology systems, hardware, and software.

From VDC’s vantage point, this is a great move by Cognex, which can now focus its attention on existing and emerging opportunities for its machine vision systems and ID products portfolios. The company has experienced much success in the consumer electronics and logistics industries in the past few quarters, a momentum that it can capitalize on going forward by intensifying its product development and sales efforts in these high-growth markets. In its latest earnings call, Cognex outlined the enormous potential it sees with large accounts in these verticals, which the company is very eager to profit from. At the same time, the company will lose out on business in metals in China, which is a particularly appealing market right now because of growth in the automotive sector. That said, revenues from this division have been characteristically lumpy because of timing of deliveries and the impact of revenue deferrals.

Its sale of the surface inspection division will not only make it a more profitable company (higher overall gross margins), but also significantly boosts its cash reserves. Cognex has no long-term debt and, per its most recent annual report, does not anticipate needing debt financing in the near future. This opens up the very distinct possibility of Cognex potentially acquiring another company to achieve one (or more) of the following objectives – boost its engineering talent, grow its logistics customer base, or even build partnerships with leading global material handling systems integrators and solution providers.

(With Jenny Hai, Research Assistant)

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Zebra Technologies’ Stock Pops; Company Soars to New Highs

Zebra Technologies (ZBRA) reported its Q1 2015 earnings on May 13th, beating the market consensus on EPS by 27 cents and that on revenues by $11.37 million. Net sales of $892.3 million for the quarter included the $561 million contributed by the Enterprise business unit acquired from Motorola Solutions, a 6% increase on a constant currency basis. Zebra’s legacy business accounted for $331.6 million, up 15% from Q1 2014, a remarkable increase for what is generally viewed as a stable and relatively saturated market. The company’s gross margin now stands at 45.8%, down from 51.3% for 2014; this is reflective of the change in product mix and the contribution of Enterprise solutions to the overall revenues, which tend to have a lower margin than legacy Zebra products.

Zebra also spent a substantial amount on integration-related activities. The speed with which the company has integrated the two businesses is rather impressive, especially given the size and scale of each of the individual business units. In the past few weeks, Zebra has also launched a new website and hosted its annual partner conference, all with a goal to communicate its new market messaging and value propositions.

Now, here are some key highlights of the company’s first quarter performance:

• The data capture business unit experienced its second strongest quarter ever (following Q4 2013) – with a healthy run rate business and a number of large deals. Its camera-based bioptic scanner product line is doing particularly well, with the value propositions resonating immensely with large retailers in the US.
• North America and EMEA continue to be the strongest regions for Zebra. With sales of $443 million and $291 million in the two regions respectively, the company is re-affirming its market leadership position, especially with its legacy printer products.
• Retail sales were particularly strong in the US as the company saw large deals for printers, mobile computers, and data capture solutions. Healthcare has consistently been a strong performer for Zebra in the past few quarters. The trend continues with growing traction for the company’s solutions to help care providers with medication management, patient identification, and specimen tracking.
• Perhaps the most noteworthy development in Q1 was the company’s price increase announcement in Europe in late March, effective late April (after four weeks). This is a move to counter the impact of the strengthening dollar and weakening Euro on the company’s profitability and bottom line given that the region represents about 25% of overall revenues. Zebra expects high stickiness for its run rate products like printers and data capture solutions.
• Enterprise business unit sales in Asia are in the process of getting back on track after having faltered for much of 2013 due to issues with the sales force and other operational challenges. The company’s efforts to reengage with channel partners in the region and rebuild relationships seem to be paying off with sales in China up sharply for Q1. Overall revenues in the region were at $106 million with sales to customers in logistics and healthcare verticals offset weakness in demand in manufacturing.

The company expects the growth trajectory to continue into the second quarter especially with a strong pipeline for large deals. For Q2, Zebra expects total revenues in the range of $865 to $895 million. The price increase on Euro-dominated sales will start to have a positive effect this quarter and is expected to have a more pronounced impact in the second half of the year.

Following its earnings release, ZBRA’s stock went up more than 12%. This speaks of investor confidence in the company and the efficiency with which Zebra seems to be communicating its “One Zebra” message to its customers and partners. Zebra Technologies’ executive leadership is confident in its market standing and optimistic about market opportunities for the remainder of 2015. At VDC, we will continue to follow its progress and keep our readers updated.

More AutoID Industry Consolidation on the Horizon - Who's Next?

How will the final quarter of 2014 shape up for the AutoID and Data Capture industry? Can the market accommodate or even handle one more acquisition? I believe it can. In this blog, I will highlight my top picks for:

• The company most likely to make an acquisition
• The company (or business division) most likely to be acquired

The AIDC market has had a rather interesting 18 to 24 months with some big name acquisitions. First, there was Honeywell’s acquisition of Intermec Technologies. When this deal closed in September of last year, the Federal Trade Commission (FTC) placed conditions on this proposed merger, taking issue with the competitive impact of this merger on the 2D barcode OEM scan engine market. In order to ensure that Motorola Solutions and Honeywell are not, essentially, the only vendors competing in the US market for this product category, the FTC afforded Italy-based Datalogic the choice of licensing Intermec’s 2D scan engine patents for the next 12 years. That aside, Honeywell now became involved in the development, manufacture, sale and integration of all core AIDC technologies (barcode scanners, barcode printers, RFID, rugged mobile computers, etc.), giving enterprises with AIDC solution requirements a “one stop shop” alternative.

And then there was Zebra Technologies’ rather unexpected acquisition of Motorola Solutions’ Enterprise business unit in April, 2014 for $3.45 billion. This deal continues to remain subject to regulatory approval, although VDC does not anticipate any issues here. Zebra has now gained direct entry into the broader AIDC market, making it a one-stop-shop much like Honeywell. In addition to its leadership position in the thermal label printer market, Zebra inherits Motorola’s leadership position in rugged handheld computing and barcode scanning, segmented entirely complementary to Zebra’s existing solutions portfolio. However, the deal does have us wondering. To what extent was its timing influenced by longtime Zebra partner Honeywell’s acquisition of Intermec and the addition of their printers to Honeywell’s solutions portfolio, rendering its partnership with Zebra essentially unnecessary?

No, I do not expect either of these companies to jump in and make another acquisition anytime soon. The industry veteran I am looking at is Datalogic, part of the “big 3” in the AIDC space, together with Honeywell and Motorola Solutions. The company last made an acquisition towards the end of 2011 when it bought Accusort from Danaher Corporation. Along similar lines, I would not be surprised if Datalogic considered acquiring Datamax-O’Neil (D-O), the printer division of Dover Corporation, a highly diversified manufacturing conglomerate. Datalogic was rumored to be very interested in buying Intermec Technologies. However, the purchase price ended up being too rich for them.

D-O is one of the leaders in the thermal printer market, with strong stationary and portable portfolios. Datalogic is now the only one of the big 3 to which the “one throat to choke” market paradigm does not apply. By acquiring D-O, Datalogic will not only own a comprehensive printer portfolio, but will also have a full solution suite to offer to its industrial automation partner and customer base. D-O’s mobile printer suite will also serve Datalogic well as it sells its mobile computers and scanners into retail and professional service environments.

In the past year, Datalogic has frequently emphasized on its focus on the industrial and logistics verticals. With a sharp focus on product innovation and feature support, D-O is boosting its position in manufacturing and transportation, while also, more importantly, extending its reach into non-industrial markets. The company’s performance in its core hardware category has stagnated in the past two years. Could being part of an AIDC industry behemoth help turn its fortunes?

From VDC’s perspective, a one-stop-shop approach does not necessarily give one company an edge over the other anymore. No data capture vendor is immune to growing enterprise investments in consumer devices, which is essentially taking away from their AutoID budgets. However, such an acquisition would, at the very least, help Datalogic get back on par with its two largest competitors in this market in terms of solution offerings. And that should be enough for now.

Revisiting Our Annual Barcode Predictions with One Quarter Remaining in 2013

With three quarters of 2013 already behind us, the VDC AutoID team thought it would be interesting to revisit the 2013 predictions we made at the start of the year. In this blog post we examine our barcode predictions and offer an update as we head into the final stretch of 2013.    

Prediction #1:

More barcode market aggregation ahead – Expect continued consolidation of the barcode hardware landscape, particularly to achieve growth across product categories, verticals and regions.

Update:  It may not even be over but 2013 will be remembered as another year in which we witnessed a large amount of vendor consolidation. The major acquisition of Intermec by Honeywell will likely be the big story of 2013. That transaction's impact and significance dwarfs all other M&A activities announced to date and more than likely any others that may be completed before year’s end.  Somewhat surprising, however, is that our prediction proved true before the Honeywell/Intermec deal closed as at least five acquisitions were announced by the end of May.

M&A announcements of note during the first three quarters in the barcode market include:

• Honeywell completed the acquisition of Intermec after receiving final FTC approval, adding new or augmenting existing solutions in voice, barcode printing, RFID and mobile computing (September).
• OCR Canada acquired Aurora Bar Code Technologies Ltd. in order to increase its presence in Western Canada and expand its enterprise mobile computers, barcode scanner, RFID and wireless network capabilities (May).
• Barcoding Inc bought Miles Technologies Inc. for an undisclosed amount in a move to increase its presence in the central US (May).
• General Data Company, a leading manufacturer and provider of barcode identification, tracking and data management products and solutions sought to expand its healthcare solutions offerings and acquired Triangle Biomedical Sciences Inc. (TBS), a leading manufacturer and supplier of instrumentation, reagents and consumables for the clinical and research pathology market (May).
• Datamax-O’Neil acquired the thermal printer assets of Source Technologies, a leading provider in specialized printing solutions (May).
• Telenor acquired Liquid Barcodes, the largest provider of mobile coupons in Norway, to strengthen its focus on coupons, value codes and loyalty solutions. Along with the company Valuecodes, in which Telenor has a controlling 51% stake, Telenor will become the leading mobile coupon player in Norway and have a strong foundation for further expansion (March).

Prediction #2:

Barcode vendors will learn to “accessorize” – More barcode hardware players will actively look to enter [or further entrench themselves in] the “accessories” market – developing sleds and/or sleeves with barcode scanner,  payment acceptance or other features that support consumer-grade device usage in retail, healthcare and enterprise environments.

Update: Starting with a large number of vendor products announced and on display at NRF, it was clear in January that “accessorizing with AutoID” was central to many product development strategies. Buoyed by the expanding BYOD trend and focus on lowering total cost of ownership (TCO), several vendors such as Griffin Technology and Honeywell have released new sleeves and sleds suited for enterprise, retail and/or healthcare environments.  

Prediction #3

Future with mobility, not without in [barcode label generation software] market – An increasing number of barcode printing software providers will extend label printing support to portable devices (both purpose-built and consumer-grade) – facilitating mobile applications such as field sales, field service and direct store delivery (DSD).

Update: We give ourselves partial credit on this prediction as the products and capabilities to support mobile printing are available, however, end-user usage of mobile print commands managed and sent from consumer devices remains in the nascent stage. At this point in the year, most barcode label generation software and barcode printer vendors have announced support (i.e., drivers, firmware) for leading mobile operating systems such as iOS and Android.  In our 2013 conversations so far, remote print management and mobile device support remain key software development areas. In fact, expect a leading barcode label generation software vendor to announce enhanced mobile device support as part of a major new product launch in early October.

Prediction #4:

Embracing the tech-savvy consumer – Scanning with and displaying barcodes on mobile device screens will continue to grow significantly among consumers. We predict more QSRs (quick service restaurants), convenience stores, restaurants, theme parks/ entertainment venues and other consumer-facing enterprises will invest in and deploy barcode imagers and consumer-grade mobile devices to interact with consumers (e.g., coupon redemption, payment, loyalty/rewards programs).

Update: This prediction was likely going to come true; however, the quick pace of adoption and strategy migration has taken vendors (and us) by surprise. For example, 2D imager adoption remains strong through three quarters with growth outpacing all other barcode product categories, especially in retail sectors. Providing examples of business strategies focused on targeting and serving  consumers armed with smartphones are supermarket chain Giant and Stop and Shop, drugstore chain CVS, and Australia’s eRX to name a few. In addition, according to their Q2 2013 Trend Report, ScanLife processed over 7 million scans in consecutive months for the first time ever, users tend to scan over 3x per month on average (a 22% increase from a year ago) and scanning from tablets has increased by a whopping 1300% from Q2 2012.

Revisiting Our Annual RFID &RTLS Predictions with One Quarter Remaining in 2013

With three quarters of 2013 already behind us, the VDC AutoID team thought it would be interesting to revisit the 2013 predictions we made at the start of the year. In this blog post we examine our RFID &RTLS predictions and offer an update with just three months left.    

Prediction #1:

Vendors – especially RTLS solution providers – will develop the “healthcare stare” – The use of RFID and RTLS is on the rise in healthcare, most notably in the US thanks to the VA’s announced $540M+ contract to track equipment and supplies at 21 of its Veteran Integrated Service Networks (VISNs)…This spark to the market (and sizeable contract) drew a lot of attention in 2012 and we expect the RFID and RTLS frenzy to continue in healthcare in 2013. However, we caution vendors (especially RTLS providers) to not focus solely on healthcare and to seek opportunities and market development in other vertical markets where the competitive field may be less crowded.

Update: This prediction has come true in that healthcare has been the star vertical for AutoID in 2013, but those with a healthcare-centric focus are actively seeking opportunities in other verticals. Successful, high-profile applications for RFID and RTLS in healthcare include asset management, sample tracking, temperature control in sample fridges and hygiene control. While there is strong growth to be realized in healthcare, the sector is challenge with long sales cycles and tight IT budgets. Over the last nine months I have fielded several inquiries about how to target and penetrate this emerging vertical – from both non-RFID/RTLS solution providers and larger consultancies looking for expansion opportunities. Perhaps more interesting is that I have also had a fair number of exchanges with healthcare-centric RFID and RTLS solution providers seeking market opportunities where their products and services may be leveraged outside of healthcare (i.e., industrial, retail enterprises).  

Prediction #2:

Passive UHF EPC item-level tagging (ILT) in the apparel sector will pick up the pace after a somewhat slow 2012 – This past year was a mild disappointment in terms of retailer deployment of RFID for ILT of apparel. For example, no major reader or printer/encoder orders were delivered, several large retailers remain behind originally announced plans (e.g., Wal-Mart, JC Penney) and some newer programs were pushed to or will start in 2013.  So what to expect in the year ahead? Even more American Apparel stores will go live with RFID (a bright spot for 2012 as well), Wal-Mart will reassess its RFID plans but remain committed, Macy’s will make its anticipated move, JC Penney has bigger worries than RFID, international retailer Zara will play a key role in increasing tag volumes and RFID EAS will become a more critical part of the ILT in apparel conversation.

Update: Retail continues to take strides in advancing item level tagging on a global scale. Numerous companies such as Mersmann and Borsheims are using RFID for solutions against theft of high-priced goods. Kohl’s, on the other hand, is implementing a full item level tagging solution that includes non-apparel items. The successes of many pilot programs have proven the value of RFID in retail and new retailers are joining the fray as a result. The number of RFID-enabled stores and annual tag volumes among existing users are rapidly expanding. RFID EAS solutions are under broader investigation this year as tagging techniques and the cost of tagging comes down.      

Prediction #3:

Embedded RFID keeps the forward momentum – At the end of 2011 we noted the rise of “RFID inside,” or embedded RFID, as a key trend to watch for in 2012.  We are keeping it on the list in 2013 after seeing a great deal of progress in 2012. With price points declining and form factors shrinking, we expect to see solutions and applications such as these expand and new innovations to be introduced in 2013.

Update: As the capability and power of RFID expands, RFID tags are producible thinner than paper, so does the ability to embed. Uses have sprung up for video games, clothing personalization, and even fiber composites. In addition, reader chipset shipments to support embedded RFID applications have grown sharply over the last two years, with 2013 volumes for embedded chipsets likely to outpace those for dedicated, finished readers. Reader module vendors such as ThingMagic continue to innovate and develop new solutions such as RFID-enabling consumer devices such as tablets. Embedded RFID seems to be the future of RFID usage.

Prediction #4:

Honeywell Scanning & Mobility will get strategic on RFID – and quickly – after announcing its first RFID product and the acquisition of Intermec in 2012 – After some exploration of RFID while acquiring several barcode scanner and mobile computing companies over the last few years, Honeywell made some eye-catching RFID moves in 2012. They made a subtle move in introducing an RFID reader and then made a major move in announcing the acquisition of Intermec (a major RFID IP holder and RFID equipment manufacturer). We predict Honeywell will aggressively develop its RFID strategy in 2013, becoming a strong competitor in select verticals and applications that play to the combined strengths of Honeywell and Intermec.  What’s next for Honeywell – RTLS in 2013 or 2014?

Update: Although the EU had approved the acquisition in 2012, the progress had been slow moving through much of 2013 due to challenges by the FTC. In mid-September the acquisition was approved after a decision by the FTC around 2D image engine competition. With the elongated inquiry period, Honeywell’s RFID strategy remains to be seen and we may gain some insight before the year ends. VDC will keep a close eye on the process of integrating Intermec, especially Intermec’s RFID business (and IP portfolio). It may be far too soon to look ahead, but if Honeywell’s vision is to become the true, sole total AutoID solutions provider, then they would need to think about adding RTLS to the mix in my opinion. I am sure, however, that Honeywell is much more focused on making Intermec part of their operations and determining their strategies for new-to-them solutions like thermal barcode printing before they would consider pursuing another new technology such as RTLS.

 3M Narrows Passive UHF RFID Application Focus to AVI, EVR and ITS

In September of 2012, 3M acquired Federal Signals Technologies (FSTech) from Federal Signal Corporations. FSTech competed in electronic toll collection (ETC) and automatic vehicle identification (AVI) markets through its subsidiary Sirit, a passive UHF solutions provider specializing in readers. With the acquisition, 3M aimed to increase its overall RFID presence, augmenting its strong position in the high frequency (HF)-focused e-ID (i.e., e-passport) market. Sirit’s high-performance readers were also being used by customers in supply chain environments for work-in-process, asset management, item-level and other applications.

In a letter addressing 3M customers, the company announced the narrowing of their RFID practice to eliminate supply chain technology production and focus exclusively on parking and tolling applications in the transportation market, including Automated Vehicle Identification (AVI), Electronic Vehicle Registration (EVR), and Intelligent Transportation Systems (ITS) applications. Sirit, which leveraged reader technology from peers such as Motorola, was no longer a competitor in industrial sectors.  

The timing of this announcement was interesting because it was weeks before a patent lawsuit was settled between Neology (a subsidiary of SMARTRAC) and 3M over ISO 18000-6C technology made by Sirit (acquired by 3M as part of the September 2012 deal with FSTech). The settlement allows SMARTRAC, Neology, and 3M access to the others’ RFID technology in the transportation market and includes an undisclosed payment by 3M.

18000-6C technology is the hottest new technology in the automatic tolling and electronic vehicle registration (EVR) sectors because of its long range, lower costs and high performance versus alternative solutions. However, deployments to date have been largely limited to new installations where toll roads and existing infrastructure are not present (i.e., Brazil).

SML Group Acquires Software Provider Xterprise

Many experts in the RFID space have been expecting intense consolidation in the space for some time, but to no avail. We have seen pockets of activity over the years, but not enough to significantly impact the competitive landscape and value chain. In the past, I have referred to the RFID software space as one area where hardware manufacturers and solutions providers could augment and enhance their RFID offerings and value add to customers and partners, especially in key verticals.  It appears that SML Group, an apparel branding and packaging group based in China, agrees with me.

SML announced that they have acquired the majority share of Xterprise, an RFID software solution company based in Texas. Xterprise is an experienced leader in the RFID retail supply chain space, with American Apparel serving as a fully-deployed, standout item-level tagging customer. SML has left Xterprises’ operations completely intact, but will now offer Xterprises’ full suite of RFID Clarity solutions in addition to their current packages. Both companies seem excited about the new potential markets allowed by the merger. President of Xterprise, Dean Frew, stated, “We are thrilled to join the SML team and what that will mean to delivering impactful RFID Item-level solutions to customers around the globe.” This acquirement increases SML’s presence and power in the Americas, a key to their global expansion strategy (the majority of their customers are Asian based retail companies) and enables the company to deliver end-to-end solutions throughout the apparel supply chain from the point of manufacture to the retail store floor.  

Dissecting Honeywell’s Intermec Acquisition: The Potential Road Ahead

Yes, it has been a few weeks since Honeywell announced that it had signed a definitive agreement to acquire Intermec. While this continues to be subject to regulatory approvals, in this blog post I share some thoughts on how this deal may shape up and impact the barcode vendor landscape. Intermec is an active participant in two barcode technology hardware markets – Barcode Printers and Handheld Barcode Scanners. The company has a relatively small presence in the barcode scanning market, with a recent entry into the general purpose scanner space. However, in this category Intermec is up against industry behemoths including Motorola Solutions, Datalogic and Honeywell. I expect Honeywell to fully integrate this part of Intermec’s business into their own; especially given how closely aligned it is with one of Honeywell’s core AIDC competencies. Barcode printing is, however, a whole other conversation.

Intermec is one of the leading barcode printer vendors, according to our research. They rank 5th in our global vendor share chart and are considered to be among the most innovative and resilient brands in the space. Intermec has, over the past 12-18 months, introduced several new barcode printers to the market across all form factors – desktop, industrial and portable. Backed by its strong IP in the space, the organization is well-respected and has a strong presence in each of the regional markets. Is this a business that Honeywell has experience in and is entirely comfortable with? Now this is pure speculation, but I would think not. In my opinion, Intermec’s real value for Honeywell lies in its following areas of expertise – rugged mobile devices, voice technology, barcode scanners and RFID. The barcode printing and media/consumables business is quite possibly one that Honeywell would look to sell to a suitable candidate with an inherent knowledge of this fragmented market and its competitive dynamics, particularly as this doesn’t necessarily fit in with Honeywell’s growth strategy.

To determine the likely contenders vying for Intermec’s barcode printer and consumables business is challenging, but here are my two top picks:

1. ZEBRA TECHNOLOGIES – the undisputed global leader in the barcode printing market. Zebra has a long history of innovation, credibility and dominance in this space. By acquiring this part of Intermec’s broad product portfolio, the company would gain considerable share in each of the regional markets while also successfully leveraging Intermec’s significant presence in the Manufacturing and Transportation & Logistics verticals. Intermec’s strong printer consumables sales would only work to sweeten the pot.
2. SATO CORPORATION – barcode printer market leader in Asia-Pacific, with a much smaller presence in other regions. SATO is a billion-dollar AIDC organization with a business model that is a little different from that of its competitors – a much heavier contribution of consumables sales to overall revenues as opposed to hardware. SATO could significantly benefit from Intermec’s strong barcode printer sales into the Americas and Europe, growing its market presence and share in these regions via a single acquisition.

While it is all pure speculation at this time, I will certainly be keeping an ear out for any such market developments. Stay tuned.

(You can read my other post on this acquisition here)